ProShares, a premier provider of alternative exchange traded funds (ETFs), today announced the launch of ProShares Investment Grade—Interest Rate Hedged (BATS:IGHG), the first investment grade bond ETF in the United States that provides a built-in hedge against rising interest rates. The new ETF targets a duration (a measure of interest rate sensitivity) of zero by shorting Treasury futures.
"Investors have been fleeing long-term bond funds as concerns grow over losses that might result from rising interest rates. While many investors have moved to shorter duration bond funds to lessen the impact of rising rates, they remain exposed to some interest rate risk," said Michael Sapir, Chairman and CEO of ProShare Advisors LLC. "We are pleased to offer the first U.S. ETF to provide investors a portfolio of investment grade bonds with a built-in interest rate hedge designed to target a duration of zero."
ProShares now offers two interest rate hedged bond ETFs. ProShares High Yield—Interest Rate Hedged (HYHG), launched earlier this year, targets a duration of zero on a diversified portfolio of high yield bonds. Each ETF tracks an index from Citi Fixed Income Indices.
“Citi is pleased to be partnering with ProShares in the development of a series of indices for their suite of alternative ETFs,” said Jayni Kosoff, Managing Director of Citi Fixed Income Indices. “We designed objective, transparent, rules-based indices that not only reflect ProShares’ insightful investment strategies, but also, importantly, investor sentiment. Investors benefit when index innovation brings these elements together.”
To learn more about the ProShares Investment Grade Interest Rate—Hedged ETF, visit ProShares.com.
About the Citi Corporate Investment Grade (Treasury Rate-Hedged) Index
The Citi Corporate Investment Grade (Treasury Rate-Hedged) Index is a U.S. dollar-denominated index that measures the performance of investment grade corporate debt. The index consists of a long position in investment grade corporate bonds and a duration-matched short position in U.S. Treasury bonds. The investment grade portion of the index offers exposure to the more liquid, cash-pay bonds.
Each issuer is limited to 3% of the market value of the investment grade corporate position of the index. The short position in U.S. Treasury securities is constructed using three U.S. Treasury securities corresponding to the 10-Year U.S. Treasury Note Futures, U.S. Treasury Bond Futures and Ultra U.S. Treasury Bond Futures contracts in an attempt to approximate the maturity distribution of the overall index.
The short position in U.S. Treasury securities attempts to hedge the duration and yield curve exposure of the long position in the investment grade bonds in the Citi Corporate Investment Grade (Treasury Rate-Hedged) Index. This strategy seeks to mitigate the negative impact of rising U.S. Treasury interest rates on the performance of investment grade bonds. Conversely, the strategy may limit the positive impact of falling interest rates.
Offering the nation's largest lineup of alternative ETFs, ProShares helps investors to go beyond the limitations of conventional investing and face today’s market challenges. Each ProShares ETF provides access to an alternative investment strategy delivered with the liquidity, transparency and cost effectiveness of an ETF. ProShares' lineup of 143 ETFs includes Global Fixed Income, Hedge Strategies, Geared (leveraged and inverse), and Inflation and Volatility ETFs.
ProShares has the largest lineup of alternative ETFs in the United States, according to Financial Research Corporation (“FRC”), based on an analysis of all the known alternative ETF providers (as defined by FRC) by their number of funds and assets (as of 3/31/2013).
Carefully consider the investment objectives, risks, charges and expenses of ProShares before investing. This and other information can be found in their summary and full prospectuses. Read them carefully before investing. Obtain them from your financial advisor or broker/dealer representative or visit ProShares.com.
Investing involves risk, including the possible loss of principal. This ProShares ETF entails certain risks, which may include risk associated with the use of derivatives (futures contracts), imperfect benchmark correlation, and market price variance, all of which can increase volatility and decrease performance. Bonds will generally decrease in value as interest rates rise. Short positions lose value as security prices increase. Narrowly focused investments typically exhibit higher volatility. Please see the summary and full prospectuses for a more complete description of risks. There is no guarantee any ProShares ETF will achieve its investment objective.
IGHG does not attempt to mitigate factors other than rising Treasury interest rates that impact the price and yield of corporate bonds, such as changes to the market’s perceived underlying credit risk of the corporate entity. IGHG seeks to hedge investment grade bonds against the negative impact of rising rates by taking short positions in Treasury futures. These positions lose value as Treasury prices increase. Investors may be better off in a long-only investment grade investment than investing in IGHG when interest rates remain unchanged or fall, as hedging may limit potential gains or increase losses. No hedge is perfect. Because the duration hedge is reset on a monthly basis, interest rate risk can develop intra-month, and there is no guarantee the short positions will completely eliminate interest rate risk. Furthermore, while IGHG seeks to achieve an effective duration of zero, the hedge cannot fully account for changes in the shape of the Treasury interest rate (yield) curve. IGHG may be more volatile than long-only investment grade bond investment. Performance of IGHG could be particularly poor if investment grade credit deteriorates at the same time that Treasury interest rates fall. There is no guarantee the fund will have positive returns.
“CITI” is a trademark and service mark of Citigroup Inc. or its affiliates, is used and registered throughout the world, and has been licensed for use by ProShares. ProShares ETFs based on the “Citi Corporate Investment Grade (Treasury Rate-Hedged) Index” are not sponsored, endorsed, sold, or promoted by Citigroup Index LLC (“Citi Index”) or its affiliates (collectively, “Citigroup”), and they make no representation regarding the advisability of investing in ProShares ETFs. CITI INDEX MAKES NO EXPRESS OR IMPLIED WARRANTIES OF ANY KIND, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall Citigroup be liable for any direct, indirect, special or consequential damages in connection with any use of the “Citi Corporate Investment Grade (Treasury Rate-Hedged) Index” or the “Citi High Yield (Treasury Rate-Hedged) Index.” ProShares are distributed by SEI Investments Distribution Co., which is not affiliated with the fund’s advisor.